Measuring intra-generational redistribution in PAYG pension schemes

Abstract

Voters in ageing societies expect pension reforms to be both inter-generationally and intra-generationally fair. In this paper, we propose a global measure of intra-generational redistribution in pay-as-you-go pension schemes as a basis for voters’ evaluations of reforms. Our novel index only requires information on contributions by and pension benefits paid to retirees, enabling us to measure intra-generational redistribution isolated from possible inter-generational redistribution. We rely on the contribution records of approximately 100,000 Germans, who progressed into retirement in 2007–2015, to measure the level of intra-generational redistribution in the German statutory pension scheme (GRV). A recent reform of the childcare benefit provision, which became effective in 2014, confirms the predictions of our index. The reform introduced additional benefits for a substantial subgroup of German mothers, owing to which the index value for women, but not for men, jumps up. Our findings suggests that GRV fulfills the ideal of a Bismarckian pension system without intra-generational redistribution for men, while women benefit significantly from intra-generational redistribution.